Brief Fact Summary. James Sinyard became part of a class action lawsuit against his former employer for age discrimination. He was forced to resign at the age of 49. The case settled for $35 million.
Synopsis of Rule of Law. The discharge by a third person of an obligation to him is equivalent to receipt by the person taxed.
The Court further stated that, while it is undoubtedly true that Congress expected fee shifting to attract competent counsel to represent citizens deprived of their civil rights, it neither bestowed fee awards upon attorneys nor rendered them nonwaivable or nonnegotiable; instead, it added them to the arsenal of remedies available to combat violations of civil rights, a goal not invariably inconsistent with conditioning settlement on the merits on a waiver of statutory attorney's fees.View Full Point of Law
Issue. Are the attorneys’ fees taxable income to Sinyard?
Held. Circuit Judge Noonan issued the opinion for the United States Ninth Circuit Court of Appeals in affirming the Tax Court and holding that the attorneys’ fees are taxable income.
Dissent. Circuit Judge McKeown issued a dissenting opinion arguing that the ruling is at odds with the statutory language that provides that the attorneys’ fees awarded are in addition to the plaintiff’s recovery.
Discussion. The Court of Appeals noted that it is not relevant that Sinyard never actually had possession of the money. IDS satisfied his obligation and thus he benefited. Sinyard was obligated to pay the law firm that amount of attorneys’ fees.